Dr. Nguyen Duc Do

How do you assess Vietnam's inflationary pressure in the near future when some commodities such as fuel and construction materials have increased sharply?

Inflation in Vietnam and in many countries around the world has a certain correlation, mainly due to the impact of the prices of basic goods. If the price of gasoline, oil, food, iron, steel in the world continues to rise, sooner or later there will be an impact on inflation in Vietnam and vice versa.

However, the Covid-19 pandemic is causing the current domestic purchasing power to remain weak. Even in the future, the domestic purchasing power during the New Year and the Lunar New Year will not be much higher than now because people are still facing many difficulties due to the impact of the Covid-19 pandemic.

According to data just released by the General Statistics Office, the total retail sales of consumer goods and services was estimated at VND397.1 trillion in November 2021, up 6.2% over the previous month and down 12.2% over the same period last year.

Generally, for the first 11 months of 2021, the total retail sales of consumer goods and services will reach VND4,128.5 trillion, down 8.7% over the same period last year, if excluding the price factor, a decrease of 10.4 %.

Notably, compared to the same period last year, CPI in November 2021 only increased by 0.32% over the previous month, up 2.1% over the same period in 2020. Generally, in 11 months of 2021, CPI increased by 1.84% over the same period of last year, the lowest increase since 2016, 11-month core inflation increased by 0.82%. These figures show that the negative impact of the Covid-19 pandemic on people's income and lives.

According to my prediction, the CPI in 2021 will only increase by 2% on average compared to 2020. In the following year, inflation will remain under control, that means it is below 4%, at around 3%. However, it is possible that inflationary pressure will be higher from 2023, when the economy fully recovers, the purchasing power of consumers is higher. Not to mention the impact of the loose monetary policy in recent years will come into play after a few years.

In your opinion, what risk factors will affect inflation in 2022?

The recovery speed of Vietnam's aggregate demand will not be fast and will basically recover at least after six months. Therefore, in the first half of 2022, the inflation index will not be affected by domestic aggregate demand. However, this reflects that the economy has not recovered positively and is likely to create a negative sentiment affecting the macro balance, including CPI.

Low aggregate demand and commodity prices can help stabilize CPI at low levels in the short term, but cannot sustain it in the long term. The most worrying thing is that when the economy recovers, aggregate demand increases or when enterprises are unable to bear losses, prices will increase sharply, causing market turmoil and causing CPI to increase rapidly.

However, if the macro management is reasonable, especially the money supply controlled at a moderate level, although the CPI in 2022 will be higher than this year, it is still capable of staying below 4%.

In the future, what solutions should Vietnam do to control inflation below 4% according to the target set by the National Assembly?

Temporarily, the Covid-19 pandemic is the key factor to keep inflation in Vietnam below 4% this year and next year. Because of Covid-19, many people have tightened their spending, unemployment is still high, while the production and business situation is still uncertain, so enterprises have not stepped-up investment, these factors mean prices are unable to rise sharply. But when the economy recovers, consumers can increase their spending, enterprises step up investment, which will put pressure on inflation.

Therefore, the control of inflation in the next period depends on the monetary policy of Vietnam as well as that of developed countries, especially the US, because it affects the prices of basic commodities in the world.

In the past 5-7 years, the monetary policy in Vietnam has been relatively cautiously planned, so high inflation as in the 2007-2011 period can be ruled out. However, with the growth of the money supply always higher than nominal GDP, it is possible for inflation to exceed 4% at some point.

Along with economic recovery as well as the gradually increasing inflation pressure, the general trend is that interest rates will increase. However, in the context that Covid-19 is still complicated, the State Bank will probably continue to maintain the current monetary policy until the end of 2021. But from next year, if Vietnam's economy sees a positive recovery, the State Bank may make certain adjustments in monetary policy.

In order to reduce pressure and sustainably control inflation in 2022, the authorities need to implement many measures such as closely monitoring supply and demand, market prices of essential commodities, and be proactive in controlling the prices of state-managed goods at the right time with the right dose.